Decision-useful financial reports in efficient securities markets

Seminar Paper , 2002 , 22 Pages , Grade: 1,0

Business economics - Controlling

This paper studies the decision-usefulness of accounting information and the implications of financial reports, especially against the background of efficient securities markets. The decision-usefulness of financial statements gained in importance in the literature of accounting research due to the decline in helpfulness for decision taking of traditional financial statements like earnings, cash flows and stock returns.1 This deterioration is accompanied by a deficit of future-oriented indicators, in particular intangible assets, which are not integrated in the actual financial reporting requirements.2 These outstanding problems lead to incompleteness of capital markets, which are tried to be solved by different mechanisms, e.g. penalties, incentives and voluntary disclosure, to attain to efficient securities markets, the social advantageous solution.3 Section 2 describes the requirements of efficient securities markets, its various forms and the origin of inefficient working securities markets. Chapter 3 illustrates the usefulness of financial statements for different constituencies, especially for investors and management, and the legal standards for mandatory disclosure. Division 4 expresses the information dilemma and presents diverse solutions for an approximation to social optimal allocations, i.e. allocations that diminish securities markets inefficiencies. Chapter 5 gives a short summary of this paper. 1 See LEV / ZAROWIN (Boundaries of Financial Reporting 1999), pp. 354 – 362. 2 See GÜNTHER / BEYER (Value Based Reporting 2001), pp. 1627 – 1629. 3 See SCOTT (Financial Accounting Theory 1997), pp. 81 – 82.

Inhaltsverzeichnis (Table of Contents)

• 1. OVERVIEW
• 2. EFFICIENT SECURITIES MARKETS
• 2.1. DEFINITION
• 2.2. FORMS OF EFFICIENCY
• 2.3. INEFFICIENT MARKETS
• 2.3.1. Naïve traders
• 2.3.2. Information asymmetry
• 2.4. CONCLUSIONS
• 3. DECISION-USEFULNESS OF ACCOUNTING INFORMATION
• 3.1. ECONOMIC RELEVANCE OF FINANCIAL REPORTING
• 3.2. LEGAL ASPECTS
• 3.3. SIGNIFICANCE OF FINANCIAL REPORTING FOR DIFFERENT CONSTITUENCIES
• 3.3.1. Investors
• 3.3.2. Management
• 3.4. CONCLUSIONS
• 4. FINANCIAL REPORTING AND THEIR IMPLICATIONS
• 4.1. INFORMATION DILEMMA
• 4.2. SOLUTIONS OUT OF THE INFORMATION QUANDARY
• 4.2.1. Penalties/ Incentives
• 4.2.2. Change of legal standards
• 4.3. CONCLUSIONS
• 5. SUMMARY

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper aims to analyze the usefulness of accounting information for decision-making within the context of efficient securities markets. The focus lies on exploring how financial reports can be improved to better serve the needs of investors and management, particularly in light of the growing importance of intangible assets.

• The decision-usefulness of financial reports in relation to efficient securities markets
• The importance of future-oriented indicators and the challenges of incorporating intangible assets into financial reporting
• The impact of market inefficiencies and the role of information asymmetry
• The implications of various forms of market efficiency for accounting information
• Potential solutions for improving the effectiveness of financial reporting in the context of market inefficiencies

Zusammenfassung der Kapitel (Chapter Summaries)

• Chapter 1: Overview: This chapter introduces the topic of decision-usefulness of accounting information, highlighting the growing need for improved financial reporting. It emphasizes the challenges of traditional financial statements in providing useful information for decision-making, particularly in light of the increasing importance of intangible assets.
• Chapter 2: Efficient Securities Markets: This chapter provides a comprehensive discussion of efficient securities markets, defining the concept and exploring its various forms. It examines the theory of the Efficient Market Hypothesis (EMH) and addresses the challenges of empirical testing. The chapter also explores the sources of market inefficiencies, including naive traders and information asymmetry.
• Chapter 3: Decision-Usefulness of Accounting Information: This chapter delves into the decision-usefulness of accounting information for different stakeholders, focusing on the needs of investors and management. It discusses the legal aspects of mandatory disclosure and explores the significance of financial reporting for decision-making.
• Chapter 4: Financial Reporting and Their Implications: This chapter explores the information dilemma in the context of efficient securities markets. It discusses the challenges of achieving optimal resource allocation in the face of information asymmetry and presents potential solutions, including incentives and penalties for accurate reporting, as well as adjustments to legal standards.

Schlüsselwörter (Keywords)

The paper focuses on the decision-usefulness of accounting information, efficient securities markets, intangible assets, information asymmetry, investor and management decision-making, financial reporting, legal standards, penalties, incentives, and market inefficiencies.

• College: University of Hannover (Lehrstuhl für Controlling)
• Course: Seminar zur "Financial Accounting Theory"
• Grade: 1,0
• Author: Dennis Teichmann (Author)
• Publication Year: 2002
• Pages: 22
• Catalog Number: V35753
• ISBN (eBook): 9783638355759
• Language: English
• Tags: Decision-useful, Seminar, Financial, Accounting, Theory